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Shipping Expect More Increases

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Shippers warned to expect ‘significant’ US rate increases in all modes

William B. Cassidy, Senior Editor (/users/william-b-cassidy) | Nov 19, 2014 1:54PM EST

FORT LAUDERDALE, Florida — Shippers who came to the National Industrial Transportation League’s

annual conference here hoping to hear U.S. freight rates would moderate after rising significantly in 2014 are

heading home disappointed.

Surface freight rates in North America are only moving in one direction, analysts and economists told

shippers at the NITL conference and TransComp Exhibition. The question is how high they will go and what

businesses can do to soften the blow.

“As we head into 2015 and beyond, be prepared for significant rate increases across all modes,” said Justin

Long, transportation and research analyst at equity research firm Stephens.

“We expect truck pricing to rise for multiple years,” said Ken Hoexter, senior air freight, surface and marine

transportation analyst at Bank of America/Merrill Lynch.

Less-than-truckload carriers instituted a second round of general rate increases this year for only the third

time in the past 20 years, Hoexter said. “The one guaranteed is that you’re going to see price increases. The

unknown is how high those increases will be.”

Even on the rails, where shippers at NITL say service remains “degraded (http://www.joc.com/railintermodal/

intermodal-shipping/poor-us-rail-service-limiting-potential-intermodal-volume-growth_20141006.html),” prices are

moving inexorably upward (http://www.joc.com/rail-intermodal/intermodal-shipping/will-intermodal-service-match-rateincreases_

20141023.html), Long said. “One of the rails is seeing 5 percent increases on recent contract

renewals, and they expect mid-single-digit increases next year,” he said.

The surge in pricing is directly tied to supply and demand — higher demand (http://www.joc.com/truckinglogistics/

truckload-freight/us-truck-tonnage-rebounds-retail-manufacturing-growth_20141118.html), and tighter surface

transportation capacity on the roads and on the rails, the analysts said.

“We are heading toward a capacity crisis, and I think it’s going to get much worse,” said John Larkin,

managing director and head of transportation capital markets research at Stifel. “The only questions are

timing, severity and the impact on spot rates.”

Truck safety regulations in the pipeline at the Department of Transportation will take another 10 to 15 percent

of capacity out of the trucking market, Larkin said. He doesn’t have much hope for near-term improvement in

rail capacity, either. Railroads have been working hard to add locomotives and train crews, Larkin said, “but

that’s akin to throwing more traffic cabs onto Fifth Avenue when there’s a traffic jam there already.”

Logistics companies and shippers at the NITL conference are looking for ways to ease the pain, especially

greater collaboration.

“I haven’t met a shipper yet who hasn’t had a rate increase this year,” said Paul Newbourne, senior vice

president for operations at Armada Supply Chain Solutions, which works with restaurant and foodservice


Most of the truck rate increases have been in the mid- to high-single-digit percentage range, Newbourne said,

“which is high compared with what we’ve seen in the past couple of years.”

He has known shippers to accept rate hikes as high as 40 percent to secure capacity.

“We see lots of inflationary pressure” on rates, he said. “We’re going to work to minimize the increases as

much as possible, but the harsh reality is the inflationary environment.”

Contact William B. Cassidy at wcassidy@joc.com (mailto:wcassidy@joc.com) and follow him on Twitter:

@wbcassidy_joc (https://twitter.com/wbcassidy_joc)


Above article was found at JOC.com

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